Thursday, February 01, 2007

In a piece two days ago in this space entitled “Maryland PSC Chief Resigns-The Way Forward on Energy Policy,” I used the occasion of Maryland Public Service Commission Chairman Kenneth Schisler’s resignation to set forth some general principles that should guide Maryland’s role in establishing sensible energy policy. While the federal government has—and should have--the leading role in establishing and promoting an energy policy that will move the nation towards the goal of achieving energy security, I explained that states and local governments have a significant role to play as well.

Indeed, in this regard I stated: “Consistent with the above principle concerning the need to think long-term, the PSC and other parts of the state government--and, for that matter, local governments--have an important role to play in facilitating and promoting an increase in energy supplies. While certainly environmental and other legitimate local concerns need to be addressed, too often worthy projects, whether they will increase electricity or natural gas generation or distribution are stymied by state and local officials who are simply responding to a "NIMBY" (Not-in-my-backyrard") attitude by a small group of citizens. Again, legitimate environmental and other concerns should be addressed. But state and local officials have an important role to play in not obstructing the plans of utilities that are willing to invest capital in new plants and other necessary infrastructure, such as natural gas storage facilities or new power lines, to bring on new supplies of energy. Absent the ability to bring on new supply, there will be increased pressure to increase rates for the more limited supply of energy that does exist.”

Lo and behold, shortly after finishing that piece, I learned, as the lawyers say, of a case on point. A federal court in Baltimore held that the Natural Gas Act preempted a local Baltimore zoning ordinance that had the effect of denying an application by AES Sparrows Point LNG to construct a liquefied natural gas terminal at Sparrows Point. The link to the full decision is here. The court examined the text, legislative history, and context of the 2005 amendments to the Natural Gas Act (“NGA”) and concluded that all “clearly reflect the intent of the United States Congress to preempt local governments with respect to the siting of liquefied natural gas facilities.” While the NGA reserves to the states rights and obligations under certain environmental statutes, as the court explained, the act “now governs virtually every step of an LNG facility’s siting, construction, and operation.” In light of the need to increase energy supply consistent with national policy, Congress obviously wanted to give the Federal Energy Regulatory Commission (“FERC”) principal authority to make determinations concerning LNG terminal facilities.

The Baltimore Sun editorialized in “A Clear Message” that “it is hard to argue with the [court’s] legal reasoning.” Nevertheless, it urged local Baltimore officials to continue to try to stop the proposed LNG terminal from being built at Sparrows Point by invoking an environmental statue that is excepted from FERC’s exclusive decisionmaking authority. I don’t know enough about the specific situation at Sparrows Point to know whether such a course by local officials has any merit at all. What I do know is that the court’s decision sends a clear message regarding federal primacy regarding siting LNG terminals that should not be disregarded lightly. There is a more than a bit of a NIMBY tone to the editorial’s conclusion that the proposed LNG terminal “needs a more sensible location.”

There is another proposal involving a new LNG facility presently being held up by local officials apparently succumbing to a NIMBY mindset. Washington Gas wants to increase its natural gas storage capacity at a site it owns in Chillum, Maryland, by constructing a new LNG storage tank. Even though the new gas storage tank would be considerably smaller than two separate gas storage tanks previously located at the very same location until they were decommissioned several years ago, the proposal has run into opposition from close-by citizens expressing concerns about the safety of the facility. Local authorities thus far have stymied the project.

Washington Gas says the new storage tank is needed so that the utility will be less dependent on transporting gas through long-distance third party pipelines, and that by locating the facility close to WG’s pipes that already are in the ground, it will be able to avoid expensive pipeline construction projects that are disruptive to public roadways. And the company maintains that construction of the new storage facility will allow it to buy natural gas when demand and prices are lower and pass the cost savings, as well as the savings in transportation costs, on to consumers. Finally, and importantly, in the highly unlikely event a spill were to occur at the proposed Chillum facility, the project design incorporates numerous safety features that protect the safety of the community as well as the environment.

Because Washington Gas is proposing to construct an LNG storage tank rather than an LNG terminal, the provisions of the Natural Gas Act that were the basis of the court’s finding of federal preemption may not apply to the Chillum proposal in the same way they do with respect to AES’s Sparrows Point proposal. But putting aside the legalities, there is an underlying commonality of principle that is crucial, and that goes back to what I said two days ago: State and local officials have an important role to play in facilitating —not obstructing—projects that will increase the ability of utilities to meet consumers’ needs for energy in a safe, reliable, and environmentally-sound manner. Certainly, as a nation, we will never meet our goal of achieving greater energy independence if state and local officials simply respond to proposals for needed new facilities with a NIMBY mindset.